Community development finance institutions are calling for a further £150m government lending pot to support small businesses and social enterprises, including co-operatives. Community lenders have already generated over £100m in extra economic value.
According to the Community Development Finance Association (CDFA), the funding has also secured over 2,266 jobs and created another 352. Small businesses including co-operatives receive funding from the £60m Regional Growth Fund (RGF) through community lenders.
Since the emergence of the financial crisis, getting access to credit has been more difficult for small and medium enterprises. Although small businesses in the UK create 60% of jobs and 50% of GDP, the loan application rejection rate from mainstream banks for micro and small and medium enterprises has increased from 5% in 2004 to 20% in 2012.
Ben Hughes, chief executive of the CDFA, explained: “Community Development Finance Institution (CDFI) lenders are stepping up to fill the gap in available finance and the potential for further growth is immense. We are calling on the government to reinvigorate its commitment to economic growth in communities across England with a further £150m of funding. The value added demonstrates that providing loans through the alternative finance sector is the best way to turn government funding into long-term sustainable finance for local communities and businesses.
“A new annual £150m fund is vital to expand, replicate and sustain community finance and more importantly for the development of sustainable local enterprises and local jobs. This could unlock significant private sector investment of up to £600m.”
Over £17.3m has been lent so far as part of the scheme. The government allocated £30m to the CDFA, while the Co-operative Bank and Unity Bank Trust have received another £30m to provide lending to small, micro and social enterprises. The funding is expected to help secure 8,000 jobs over six years and create an estimated economic boost of £320m.
Peter Kelly, business development and marketing director at Unity Trust, said: “The social economy is a powerful engine for growth and is driving positive social change through enterprise and job creation. Important programmes such as the RGF have enabled CDFIs to provide improved access to affordable finance and Unity is delighted to be playing its part in this success story.”
Paul Martin, national manager of charities and social enterprise banking at the Co-operative Bank, added: “As a Bank with values and ethics at the heart of our business, we fully understand the important role small businesses and community based organisations play in ensuring our communities survive and thrive. We are pleased that through our continued involvement in the Regional Growth Fund, we can further extend our support to these dynamic sectors through wholesale lending to enterprise CDFIs.
One of the founding members of CDFA is Co-operative and Community Finance, which in 2013 alone paid out £1,209,500 in loans and investments to co-operatives and community-owned organisations. “Co-operative and Community Finance has been lending to co-ops for over 40 years. We are one of the few CDFIs that are authorised by the FCA and operate sustainably,” said Ian Rothwell, development manager of Co-operative and Community Finance.
“As a founder member of the CDFA and the only CDFI dealing exclusively with co-operatives, we recognise the importance of this kind of funding. In particular the support it can give to the co-operative and mutual sectors in the form of business loans as mainstream banks continue to be reticent about lending.”